Sunday, March 30, 2014

The capture of a few pawns has cleared the chessboard, but the strategic choices already made have greatly reduced Putin's room to maneuver.No tree grows to the sky. Once extremes are reached, trends reverse, often with symmetry: the decline often matches the ascent.Which leads to an interesting question: have we reached Peak Putin?Let's start our inquiry by noting that pundits from across the political spectrum are all busily chainsawing events up to fit into their little boxes of existing narratives:Cold War Redux, World War 3, neo-Nazis, etc.One key driver of this stale parade of pre-packaged opinion is the instinctive urge to cheer for whatever team is on the field opposite the U.S. and President Obama.This natural urge leads to indefensible hypocrisy along the lines of "Brand X Imperialism bad, brand Y Imperialism good." If you oppose Imperialism and Great State meddling, then you can't oppose one brand of Great State meddling and support another brand.Let's stipulate a few things to get them out of the way, so we can we proceed beyond the chainsaws and little ideological boxes.1. All nations act in their own self-interest, and all states do so while claiming noble purposes that are patently absurd. To support one nation's actions in its self-interest while decrying another state's actions in its self-interest undermines one's claim to objectivity, to say the least. By all means, be a partisan, but lay open claim to being a partisan; anything less displays the same hypocrisy as that of self-serving states.2. Crimea: done. the West had no leverage, and the U.S. hypocrisy was blatant: we favor democracy and self-rule only so long as the elections go our way. Uh, right.3. Just because Ukrainians speak Russian doesn't mean they want to be annexed into Russia. Most Ukrainians speak both Ukrainian and Russian. By the logic of those claiming Russian speakers are naturally part of Russia, the U.S. could annex all of Canada (with perhaps the exception of French-speaking Quebec) on the grounds that Canadians speak English.4. Desiring cordial economic and cultural ties with Russia is not the same as supporting annexation of Eastern Ukraine to Russia. The memory of those liquidated by Russians or given "tenners" in Siberian work/death camps has not yet been extinguished. All those convinced that Ukrainians want the warm and fuzzy embrace of Russia would do well to read the three volumes of The Gulag Archipelago by Aleksandr Solzhenitsyn:The Gulag Archipelago: 1918-1956The Gulag Archipelago 2Gulag Archipelago 3

5. There is room for a non-neo-Nazi nationalism, but only if every nationalist isn't painted with a Neo-Nazi brush. There are reasonable nationalists in Ukraine but their voices aren't registering in the hyper-coverage of neo-Nazis, Western plans for World War 3, etc.6. Being rabidly anti-American doesn't necessarily mean you have to automatically be rabidly pro-Putin. If you oppose Imperialism and Great State meddling, then be consistent if you want to retain any credibility.If we set aside the Cold War Redux narrative, we are clear to see some interesting things that are neither pro nor con, they simply are.1. Russia used its energy leverage over Europe with such great gusto that the blowback will reduce that leverage. Europe is scrambling to develop other sources of natural gas, and doing anything less would not be acting in Europe's self-interest.2. Massing conscript troops and an army with limited ability to maintain its supply chain once inside Ukraine is another example of sparking blowback that will last for years and perhaps decades. Pressing your energy boot on Europe's neck was bound to create a strategic response, and massing troops on Ukraine's border has the same consequence.3. While Putin's popularity is sky-high, domestic support for invading Ukraine is low. Should the poorly paid conscripts start coming home in body bags, Putin's domestic support will be revealed as an inch deep and a mile wide.4. Russia's energy pacts with China and India are positive developments for Asian peace and development. China and India need more energy, Russia has surplus to sell--it's win-win not just for these nations but for the world. The peaceful trade of energy is a major plus for everyone.5. But selling energy to Europe and selling energy to China and India are not equal: China and India have seen the way Russia has exploited its energy leverage in Europe, and Russia will find it has precious little political leverage over China and India, who will be sure to develop alternative sources of natural gas. The loss of political leverage over Europe will not be offset by an equivalent gain of leverage over China and India.6. Russia has ruthlessly exploited its monopoly over natural gas by charging politically influenced prices: Poland, for example, pays a lot more for Russian natural gas than Germany, even though the gas flows through the same pipeline.7. Once Russia loses pricing power in Europe, it will not gain pricing power over China or India. Those nations have other sources and cannot be held hostage in the same way Poland et al. are currently held hostage.This means Russia will be earning considerably less per therm of energy once it ships natural gas to China and India.Slowly but surely, the global natural gas market is becoming more integrated. Those currently charging cartel/monopoly prices will see their energy earnings decline.8. In terms of national income, Russia is as dependent on energy earnings as any other "resource curse" oil exporter. The loss of pricing power in Europe and a decline in energy income will become headwinds for the Russian state.9. Putin's domestic popularity flows from nationalist pride in the Olympics and in reclaiming Crimea. But now that those high points are past, Putin's options are not so lopsided in his favor.Threatening (or invading) Ukraine reminds everyone in Europe why they fear Russia, and why Russia is not truly European. Domestic support in Russia for annexing part of Ukraine is low, for good reason: who wants to be responsible for the costs, financial and political?10. Reclaiming Crimea makes for good theater and is a geopolitical plus, but it does nothing to reverse Russia's real problems, which include corruption, wealth inequality, low birth rates, etc.11. Russia's military looks good on paper and in photos, but it's not as prepared to mount a sustained campaign within Ukraine as advertised. Asymmetric warfare doesn't respect lines on a map.12. If Putin had set out to reinvigorate NATO, he would do exactly what he has done to date. Anyone thinking the U.S. Deep State is in despair about Putin's moves has it backwards: everything Putin is doing is fueling blowback and resistance in nations that were potentially friendly to Russia. Nothing tells you who your friends are quite like troops massing on your neighbor's border.As a refresher, here's a map of pipelines connecting African natural gas fields to Europe.

source:Given the context laid out above, it seems increasingly likely that we've reached Peak Putin. The capture of a few pawns has cleared the chessboard, but the strategic choices already made have greatly reduced Putin's room to maneuver.Ukraine: A Deep State Analysis (February 27, 2014)Ukraine: Follow the Energy (March 4, 2014)

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Saturday, March 29, 2014

Impact exercises like jumping and running build bone mass.I don't mean to suggest eating tacos builds bone mass--these are simply the two (unrelated) topics of this weekend's post.What does build bone mass is impact exercises like jumping and running. This was explained in two recent articles from the New York Times (registration required):Exercises to Strengthen BonesHigh-Impact Exercise Is Good for Your Bones

Maintaining bone mass is important as we age. Studies are finding that weightlifting and non-impact exercising like biking and swimming don't add bone mass, despite their many other health benefits.Hopping helps:

In general, activities that involve impacts with the earth, such as running and jumping, are the most effective way to improve bone health, according to Dr. Jon Tobias, a professor of rheumatology at the University of Bristol who studies bone health. They create ground-reaction forces that move through your bones and stimulate them to “remodel” themselves and add density, he said. They also entail strong muscular contractions that tug at and slightly bend attached bones, redoubling the stimulating effects of the exercise.

Sprinting and hopping are the most obvious and well-studied examples of high-impact exercises. In one recent study, women ages 25 to 50 who leaped like fleas at least 10 times in a row, twice per day for four months, significantly increased the density of their hipbones. In another, more elaborate experiment from 2006, women who hopped and also lifted weights improved the density of their spines by about 2 percent compared to a control group, especially if the weight training targeted both the upper body and the legs. Women whose weight training focused only on the legs did not gain as much density in their spines.

Those who need to build bone mass most might not be up to impact exercises:

So, Dr. Tobias says, young people and healthy adults should probably pound the ground, at least sometimes. Sprint. Jump off a box 15 inches or higher at your gym and jump back up. Hop in place. A study by other researchers published in January found that women between 25 and 50 who hopped at least 10 times twice a day, with 30 seconds between each hop, significantly increased their hipbone density after four months. Another group of subjects, who hopped 20 times daily, showed even greater gains.

Alas, a kind of Catch-22 confronts older individuals who have not been engaging in high-impact exercise: Their bodies and bones may not be capable of handling the types of activity most likely to improve bone health.

This suggests starting impact exercises before bone loss becomes an issue. The articles don't mention jumping jacks, a staple of physical education classes, but I reckon that sort of low-impact routine would work for those fit for that sort of exercise (and be sure to get checked out before starting any new fitness regime).Though none of the studies cited mention hitting a heavy punching bag, I would guess martial-arts-type punching and kicking activity would count as impact exercise.OK, on to tacos. When the 12-hour days pile and and we're exhausted, tacos offer a quick homemade meal for a few nights. Cook up a pot of Mexican-style beans (a pressure cooker helps speed the process considerably) on Sunday and the leftovers can be heated as needed. (Cocina De La Familia: More Than 200 Authentic Recipes from Mexican-American Home Kitchens is a good source for Mexican-style recipes.)The great thing about tacos is the flexibility of the ingredients; they're especially easy for vegetarians and those avoiding gluten, as corn tortillas are the foundation. Possible toppings include lettuce, avocado, leftover steamed veggies, red and green peppers, tomatoes, salsa, sriracha sauce, cilantro, flavored firm tofu, any type of cheese you favor--the list is long indeed.Tacos can be elaborate or simple, a meal for guests or one tossed together in a state of famished exhaustion.Here's a taco composed of beans, stir-fried zucchini and onions, avocado, salsa and feta and parmesan cheeses:Here's a taco meal assembled in a few minutes at the end of a crazy-long day. The tacos are just beans, avocado, lettuce, cilantro, sriracha and some thinly sliced sharp cheddar. The two vegetables are also quick: steamed asparagus and chard from the garden which was leftover from the previous evening: From the Garden to the Table in 20 Minutes (February 22, 2014)Not only is it easier to eat at home at the end of an exhausting day (if you have some leftovers and corn tortillas), it's healthier and tastes better, too."A healthy homecooked family meal and a home garden are revolutionary acts."

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

1. Debt and financialization2. Crony capitalism3. Diminishing returns4. Centralization5. Technological, financial and demographic changes in our economyComplex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Friday, March 28, 2014

The 1950s/60s were not "normal"--they were a one-off, extraordinary anomaly.If there is one thing that unites trade unionists, Keynesian Cargo Cultists, free-market fans and believers in American exceptionalism, it's a misty-eyed nostalgia for the Golden Era of the 1950s and 60s, when one wage-earner earned enough to buy all the goodies of a middle-class lifestyle because everything was cheap. Food was cheap, land was cheap, houses were cheap, college was cheap and most importantly, oil was cheap.The entire political spectrum looks back at this Golden Age with longing because it was an era of "the rising tide raises all ships:" essentially full employment, a strong U.S. dollar and overseas demand for U.S. goods combined to raise wages while keeping inflation low.The nostalgic punditry quite naturally think of this full-employment golden age of their youth as the default setting, i.e. the economy of the 1950s/60s was "normal." But it wasn't normal--it was a one-off anomaly, never to be repeated. Consider the backdrop of this Golden Era:1. Our industrial competitors had been flattened and/or bled dry in World War II, leaving the U.S. with the largest pool of capital and intact industrial base. Very little was imported from other nations.2. The pent-up consumer demand after 15 years of Depression and rationing during 1942-45 drove strong demand for virtually everything, boosting employment and wages.3. The Federal government had put tens of millions of people to work (12 million in the military alone) during the war, and with few consumer items to spend money on, these wages piled up into a mountain of savings/capital.4. These conditions created a massive pool of qualified borrowers for mortgages, auto loans, etc.5. The Federal government guaranteed low-interest mortgages and college education for the 12 million veterans.6. The U.S. dollar was institutionalized as the reserve currency, backed by gold at a fixed price.7. Oil was cheap--incredibly cheap.All those conditions went away as global competition heated up and the demand for dollars outstripped supply. I won't rehash Triffin's Paradox again, but please read The Big-Picture Economy, Part 1: Labor, Imports and the Dollar (September 23, 2013).In essence, the industrial nations flattened during World War II needed dollars to fund their own rebuilding. Printing their own currencies simply weakened those currencies, so they needed hard money, i.e. dollars. The U.S. funded the initial spurt of rebuilding with Marshall Plan loans, but these were relatively modest in size.Though all sorts of alternative global currency schemes had been discussed in academic circles (the bancor, etc.), the reality on the ground was the dollar functioned as a reserve currency that everyone knew and trusted.But to fund our Allies' continued growth (recall the U.S. was in a political, military, cultural, economic and propaganda Cold War with the Soviet Union), the U.S. had to provide them with more dollars--a lot more dollars.Federally issued Marshall Plan loans provided only a small percentage of the capital needed. As Triffin pointed out, the "normal" mechanism to provide capital overseas is to import goods and export dollars, which is precisely what the U.S. did.This trend increased as industrial competitors' products improved in quality and their price remained low in an era of the strong dollar.Long story short: you can't issue a reserve currency, export that currency in size and peg it to gold. As the U.S. shifted (by necessity, as noted above) from an exporter to an importer, a percentage of those holding dollars overseas chose to trade their dollars for gold. That cycle of exporting dollars/importing goods to provide capital to the world would lead to all the U.S. gold being transferred overseas, so the dollar was unpegged from gold in 1971.Since then, the U.S. has attempted to square the circle: continue to issue the reserve currency, i.e. export dollars to the world by running trade deficits, but also compete in the global market for goods and services, which requires weakening the dollar to be competitive.In a global marketplace for goods and services, all sorts of things become tradable, including labor. The misty-eyed folks who are nostalgic for the 1950s/60s want a contradictory set of goodies: they want a gold-backed currency that is still the reserve currency, and they want trade surpluses, i.e. they want to export goods and import others' currencies. They want full employment, protectionist walls that enable high wages in the U.S. and they want to be free to export U.S. goods and services abroad with no restrictions.All those goodies are contradictory. You can't have high wages protected by steep tariffs and also have the privilege of exporting your surplus goods to other markets. That's only possible in an Imperial colonialist model where the Imperial center can coerce its colonial periphery into buying its exports in trade for the colonies' raw commodities.And very importantly, oil is no longer cheap. The primary fuel for industrial and consumerist economies is no longer cheap. That reality sets all sorts of constraints on growth that central states and banks have tried to get around by blowing credit bubbles. That works for a while and then ends very badly.The 1950s/60s were not "normal"--they were a one-off, extraordinary anomaly. Pining for an impossible set of contradictory conditions is not helpful. We have to deal with the "real normal," which is a global economy in which no one can square the circle for long.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Thursday, March 27, 2014

That any schoolkid could predict eliminating feedback and consequences will lead to a series of disastrously poor choices by speculators and imprudent borrowers doesn't register with the Keynesian Cargo Cult.The Keynesian Cargo Cult's ability to print and squander money is insignificant next to the power of Diminishing Returns. By now we all know two things about the Keynesian Cargo Cult's religion:1. It has failed to conjure up the recovery its sadly devoted believers insist is "just around the corner if we only borrow and squander more money" because...2. Its main tenet--that the problem is "lack of aggregate demand," i.e. people will buy more stuff made in China and corporations will open more stores to sell the stuff made in China--if only it was dirt-cheap to borrow more money--is completely, utterly, painfully false.The central premise of the Keynesian Cargo Cult is that this mechanism of making it cheap and easy to borrow money will work a kind of magic that can only be manifested by dancing around a fire at night waving dead chickens and chanting "humba-humba." The Keynesian cargo Cult calls this magic "animal spirits."Unfortunately, waving dead chickens while dancing around a fire doesn't do anything in the real world, and neither does making it cheap and easy to borrow more money. It turns out that prudent people have no interest in borrowing more money, even at low rates of interest, and imprudent people are happy to do so but will stop paying the loan as soon as something untoward occurs in their finances. The cheap, easy-to-get loans default and either the banks who made the loans collapse or the taxpayers have to bail out the banks who foolishly lent money to imprudent borrowers at super-low rates of interest.Corporations, meanwhile, look at the real risks of expanding business in a debt-saturated economy distorted by Keynesian Cargo Cult policies and realize that gambling capital on the possibility that waving dead chickens and chanting "humba-humba" will actually increase profits is a truly stupid bet, so they borrow the nearly-free money and invest it in various carry trades overseas that return a virtually risk-free return, thanks to the nearly-free cost of borrowing mountains of money from the Cargo Cult.The Keynesian Cargo Cult is stubbornly blind to the two key dynamics of the real-world economy: diminishing returns and the S-Curve. Diminishing returns result when a system's ability to produce an economically valuable output declines.Higher education is a good example: tuition has soared $1,100% while the output (value of a college degree) has declined precipitously. A recent major study,Academically Adrift: Limited Learning on College Campuses, concluded that "American higher education is characterized by limited or no learning for a large proportion of students."'Academically Adrift': The News Gets Worse and Worse (The Chronicle of Higher Education)Meanwhile, student loans exceed $1 trillion, only 37% of freshmen at four-year colleges graduate in four years (58% finally graduate in six years), and 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college--retail clerks, waiting tables, etc.The Keynesian Cargo Cult solution to the diminishing returns is to provide more debt to students, making them into debt-serfs for life. The cruel stupidity and immorality of the Keynesian Cargo Cult knows no bounds because they refuse to accept the reality that diminishing returns cannot be fixed by more debt and more squandering of good money after bad.The truth is the failed cartel of higher education has to be leapfrogged and left in the dustbin of history: here's a model that lowers costs by 90% and aligns the output with the real economy: The Nearly Free University and The Emerging Economy.The Fatal Disease of the Status Quo: Diminishing Returns (May 1, 2013)The Keynesian Cargo Cult's solution allows no feedback from the real world, and allows no mechanism to discipline the imprudent borrower/speculator. If imprudent borrowers take on too much debt, the Keynesian Cargo Cult's solution is to offer them more credit at rates they can afford--near-0% if necessary.If a speculator borrows money and loses it in a high-risk gamble, the Keynesian Cargo Cult's solution is to force the taxpayer to make good the gambler's losses and then give the speculator more nearly-free money to continue gambling.This "solution" works the first time around, less well the second time around, and triggers a collapse the third time around. This lifecycle is called the S-Curve:The Keynesian Cargo Cult inflated one credit bubble in the 1990s, another in the 2000s, and by an extraordinary expansion of credit and lowering interest rates to near-zero has managed to Beat the Devil and inflate a third credit bubble in the 2010s.That any schoolkid could predict waving dead chickens and eliminating feedback and consequences will lead to a series of disastrously poor choices by speculators and imprudent borrowers doesn't register with the Keynesian Cargo Cult. But since the Keynesian Cargo Cult is headed by a Nobel Prize academic economist, the Cargo Cult members effusively praise the Emperor's fine (and nonexistent) robe.You poor, dumb, deluded fools. You've destroyed our economy, our values and our ability to deal with reality. Your faith is as boundless and disconnected from the real world as your policies.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Psychopaths are fearless, confident, charismatic, ruthless and focused. Yet, contrary to popular belief, they are not necessarily violent. Far from its being an open-and-shut case--you're either a psychopath or you're not--there are, instead, inner and outer zones of the disorder: a bit like the fare zones on a subway map. There is a spectrum of psychopathy along which each of us has our place, with only a small minority of A-listers resident in the “inner city.”

While there is obviously a place for high-functioning sociopaths in professions which reward those characteristics, what about sociopaths who substitute deviousness and deception for competence? For some context, let's turn to the Pathology Of Power by Norman Cousins, published in 1988.Cousins was particularly concerned with the National Security State, a.k.a. the military-industrial complex, which at that point in U.S. history was engaged in a Cold War with the Soviet Empire. Cousins described the pathology of power thusly:

"Connected to the tendency of power to corrupt are yet other tendencies that emerge from the pages of the historians:

1. The tendency of power to drive intelligence underground;2. The tendency of power to become a theology, admitting no other gods before it;3. The tendency of power to distort and damage the traditions and institutions it was designed to protect;4. The tendency of power to create a language of its own, making other forms of communication incoherent and irrelevant;5. The tendency of power to set the stage for its own use.

In broader terms, we might add: the tendency of power to manifest hubris, arrogance, bullying, deception and the substitution of rule by Elites for rule of law.Natural selection isn't only operative in Nature; it is equally operative in human organizations, economies and societies. People respond to whatever set of incentives and disincentives are present. If deceiving and conning others is heavily incentivized, while integrity and honesty are punished, people will gravitate to running cons and embezzlement schemes.What behaviors does our Status Quo reward? Misrepresentation, obfuscation, legalized looting, embezzlement, fraud, a variety of cons, gaming the system, deviousness, lying and cleverly designed deceptions.Let's connect the pathology of power and the behaviors selected by our Status Quo. What we end up with is a system that selects for a specific category of sociopaths: those whose only competence is in running cons.No wonder we have a leadership that is selected not for competence but for deviousness. What's incentivized in our system is spinning half-truths and propaganda with a straight face and running cons that entrench the pathology of power.What is the shelf life of a system that rewards confidence-gaming sociopaths rather than competence? Unless we change the incentives and disincentives, the system is doomed.Of related interest:The Normalization of Sociopathology in America (October 16, 2010)The Federal Reserve and the Pathology of Power (November 18, 2010)The Banality of (Financial) Evil (November 9, 2010)

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Monday, March 24, 2014

It's not the managers who are incompetent, it's the organization itself that is incompetent.I received a number of interesting reader responses to my previous entries on the incompetence of the Federal Reserve and the Deep State:The Federal Reserve: Masters of the Universe or Trapped Incompetents? (March 21, 2014)Why Is Our Government (and Deep State) So Incompetent? (March 6, 2014)Some readers thought I was underestimating the power of these institutions to pursue essentially unlimited money-printing and related global strategies.While I understand the apparent power of unlimited money-printing and global Empire, my point (poorly articulated the first time around) was this:The incompetence of these organizations is not a reflection of the competence or intelligence of their managers--it is the intrinsic consequence of their limited control of complex systems. If the system has reached the point of being ungovernable, even the most brilliant and experienced managers will fail because it's not the managers who are incompetent, it's the organization itself that is incompetent.If we boil down the Fed's vaunted god-like powers, they can be reduced to fourlevers: lower interest rates by purchasing interest-bearing assets, create the money to buy the assets, make free money (zero interest or near-zero interest) available to the global banking sector via lines of credit, and support/rig currency, bond and stock markets with purchases made directly or through proxies. (Thank you, correspondent Mike L., for reminding me about the Working Group on Financial Markets and the Exchange Stabilization Fund.)That's it. Everything else is window-dressing.Is it even plausible that any organization can control an immensely complex economy with four levers? The Fed's four levers exert no control over how much money is borrowed from the Fed or what insanely risky speculations and malinvestments the borrowed money funds.The Fed can't even control if the free money stays in the U.S.; by one estimate, fully 60% of the Fed's free money has left the U.S. for higher-interest carry trades and speculations in the emerging economies.The levers of power wielded by the centralized Fed and Deep State are too clumsy and limited to control a complex system at any useful level. The Fed, the Federal government and the deep State are all the wrong unit size.This excerpt from Preparing for the Twenty-First Century by Paul Kennedy (1993) explains why:

The key autonomous actor in political and international affairs for the past few centuries (the nation-state) appears not just to be losing its control and integrity, but to be the wrong sort of unit to handle the newer circumstances. For some problems, it is too large to operate effectively; for others, it is too small. In consequence there are pressures for the "relocation of authority" both upward and downward, creating structures that might respond better to today's and tomorrow's forces of change.

All these centralized concentrations of power have moved into the diminishing returns phase of the S-Curve. As the unintended consequences of their efforts to manage complex systems with their clumsy, limited tools pile up, their profound failure of imagination kicks in and they do more of what has already failed.The structural incompetence of centralized, wrong-unit-size agencies and central banks is global: the centralized strategies of China, Japan, the European Union and yes, Russia, too, will all fail for the same reasons: organizations with a few limited controls are intrinsically incapable of managing complex systems.The Global Status Quo Strategy: Do More of What Has Failed Spectacularly (April 23, 2013)The Master Narrative Nobody Dares Admit: Centralization Has Failed (June 21, 2012)"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economy
With the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Sunday, March 23, 2014

Financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.Emmanuel Saez and Thomas Piketty are leading lights in the exploration of rising wealth inequality. Both are academic economists who have devoted considerable time and effort to assembling data that deepens our understanding of the issues.For example, Saez's recent essay Striking it Richer: The Evolution of Top Incomes in the United States, provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.Here is a chart of the top 10% share of income, based on their research: (the note in red marking the beginning of financialization in 1982 is my own)What is the primary driver of this era's widening wealth inequality? Thomas Piketty's new book Capital in the Twenty-First Century provides an answer: financialization. While definitions vary, mine is:Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.Another way to describe the same dynamics is: financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.When the profits from financializing collateral and leveraging those bets to the hilt far exceed generating wealth by creating products and services, the economy is soon hollowed out as the perverse incentives of financialization start driving every business decision and strategy.Author David Cay Johnston recently wrote an insightful review of Piketty's book,Trickle-Up economics:

Coming out of the Great Recession in 2009, inequality increased dramatically, the opposite of what happened when the Great Depression ended nearly eight decades earlier. Why?

The short answer: When investment returns exceed economic growth, the rich get richer, increasing inequality.

When an economy grows at 1 percent annually but investment returns are 5 percent, the already wealthy need to reinvest only a fifth of their gains for their fortunes to grow at the same rate as the overall economy. The rest can be spent on a sumptuous lifestyle.

Since by definition the very rich do not need to consume 80 percent of their incomes — the portion by which investment returns exceed the growth of the economy in Piketty’s model — they can reinvest most of their annual gains in the market. Over time this accumulating capital will snowball.

The official American income numbers, crunched by Piketty and his sometime colleague Emmanuel Saez, show that in the 21st century wealth and income increases are almost all taking place among the tiniest sliver of the wealthiest and highest-earning.

The top 1 percent of Americans raked in 95 cents out of every dollar of increased income from 2009, when the Great Recession officially ended, through 2012. Almost a third of the entire national increase went to just 16,000 households, the top 1 percent of the top 1 percent, Piketty and Saez’s analysis of IRS data shows.

The income changes for the vast majority are just as revealing. The bottom 90 percent saw their average incomes rise 8.8 percent in 1934 over the prior year, while in 2012 the same statistical group had to get by on 15.7 percent less than in 2009.

Piketty shows that whether capital is taxed or not, inequality will grow under current policies because savings from current wages and salaries cannot grow as much as returns to existing riches.

The process of accumulating “becomes more rapid and inegalitarian as the return on capital rises and the [overall economic] growth rate falls,” Piketty writes.

It's important to note that capital is not monolithic, nor is all capital qualitatively equal. Capital that is invested in rigged financier games funded by the Federal Reserve (for example, carry trades and high-frequency trading) is entirely different from capital that is placed at risk in a start-up company.Capital invested in building a house is quite different from capital invested in pyramiding the mortgage into mortgage-backed securities (MBS) and exotic financial instruments based on the MBS.Productively invested capital is at risk and generates additional production of goods and services. Financialized capital skims profits from leveraging debt: nothing of any real-world value is produced, it's just a giant skimming operation based on information asymmetry (or outright fraud and misrepresentation) and leverage.Fed-funded financialization creates a perverse set of incentives: talent and capital flow to unproductive skimming operations because that's what generates the outsized profits, effectively starving the real economy of talent and capital.The Fed makes essentially limitless funds available to banks and financiers at near-zero interest rates. Try borrowing $100,000 from the Fed at 0.1% interest; you can't. That privilege is reserved for financial predators and parasites.Financier skimming operations stripmine productive assets and labor. With the Fed providing free money to financiers and no limits on debt, leverage, information asymmetry and sleight-of-hand accounting, the only result possible is widening wealth inequality.You want to fix wealth inequality? Abolish the Fed, eliminate the too-big-to-fail banks, tax speculative profits from high-frequency trading and other skimming operations at 90% and lower the corporate tax rate on productively invested capital to 5%. The only way to reduce wealth inequality is to change the incentives and disincentives to favor productive investments and innovation rather than financialization.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.
It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

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